This is a shareholder derivative action brought on behalf of Torrid against certain officers and members of the Company’s Board for breaches of their fiduciary duties between at least July 1, 2021, and December 8, 2022, inclusive (the “Relevant Period”) and violations of the federal securities laws caused by the issuance of materially false and misleading statements in connection with, among other things, the Company’s initial public offering (the “IPO”). These statements have exposed the Company to massive class-wide liability, as well as the expenditure of substantial defense costs in connection with the underlying securities class action.
It is alleged that Individual Defendants breached their fiduciary duties by failing to correct and/or causing the Company to fail to correct these false and misleading statements and omissions of material fact to the investing public. As a result, the Individual Defendants caused the Company’s public statements to be materially false and misleading at all relevant times.
Additionally, in breach of their fiduciary duties, the Individual Defendants caused the Company to fail to maintain adequate internal controls.
As a result of the foregoing, the Securities Class Action was filed against the Company and certain current and former officers and members of the Board, exposing the Company to massive class-wide liability
The Securities Fraud Class action complaint alleges that the Registration Statement for the IPO created the misleading impression that Torrid’s impressive growth trajectory was then continuing and expected to continue following the IPO. Specifically, the securities fraud class action complaint alleges the Registration Statement failed to disclose that the following adverse facts existed at the time of the IPO: (i) in the first half of 2021, Torrid had experienced a temporary surge in demand as a result of changed consumer behaviors in response to the COVID-19 pandemic and government stimulus and that such ephemeral demand trends had dissipated and were not internally projected to continue following the IPO; (ii) Torrid was suffering from severe supply chain disruptions caused by the emergence of the Delta variant of COVID-19, which had first emerged in May 2021; (iii) Torrid was running materially below historical inventory levels as a result of supply chain disruptions; (iv) as a result, Torrid did not have sufficient inventory to meet expected consumer demand for its fiscal third quarter of 2021; (v) as a result, late inventory arrival had materially impaired the Company from effectively matching consumer buying trends, creating an undisclosed risk of increased markdowns and promotional activities necessary to sell undesirable inventory; (vi) Torrid’s CFO planned to retire shortly after the IPO; and (vii) as a result of the above, the Registration Statement’s representations regarding Torrid’s historical financial and operational metrics and purported market opportunities did not accurately reflect the actual business, operations, financial results, and trajectory of the Company at the time of the IPO, and were materially false and misleading and lacked a reasonable factual basis.
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